Minister Gordhan Announces Further Details Of The Tax Review Committee And The Terms Of Reference

The
Minister of Finance, Pravin Gordhan, has today announced members of the Tax
Review Committee as well as the committee’s terms of reference.

Today’s
announcement gives effect to the Minister’s announcement in February when he
tabled the 2013/14 budget that
government will initiate a tax review this year "to assess our tax policy
framework and its role in supporting the objectives of inclusive growth,
employment, development and fiscal sustainability”.

Members of the Tax Review Committee

Judge
Dennis Davis will chair the Tax Review Committee. The other members are:

SAIT is honoured to have one of its members (Professor Annet Wanyana Oguttu) on this committee.

A
National Treasury official, Mr. Cecil Morden, and a South African Revenue Service (SARS) official,
Mr. Kosie Louw, will be ex-officio members, providing technical
support and advice to the committee. In addition, a team comprised of National
Treasury and SARS officials will provide secretarial support to the committee. SARS will provide office accommodation and
logistical support to the committee.

Terms of Reference of the Tax Review
Committee

The
terms of reference for the Tax Review Committee are to inquire into the role of
the tax system in the promotion of inclusive economic growth, employment
creation, development and fiscal sustainability. The committee will in its work
take into account recent domestic and global developments and, in particular,
the long term objectives of the National Development Plan (NDP).

The
committee will make recommendations to the Minister of Finance. Any tax
proposals arising from these recommendations will be announced as part of the
normal budget and legislative processes. As with all tax policy proposals, such
proposals will be subject to the normal consultation and Parliamentary
oversight.

The
committee should evaluate the South African tax system against the international
tax trends, principles and practices, as well as recent international
initiatives to improve tax compliance and deal with tax base erosion.

The
following aspects should receive specific attention from the committee:

An
examination of the overall tax base and tax burden including the appropriate
tax mix between: direct taxes, indirect taxes, provincial and local taxes. An
analysis of the sustainability in the long-run of the overall tax-to-GDP ratio,
and the tax-to-GDP ratio for each of the three major tax instruments, personal
income tax (PIT), corporate income tax (CIT) and VAT should be undertaken. This
in essence requires an evaluation of the economic and social impact of the tax
system and an assessment of whether the current tax structure is able to
generate sufficient and sustainable revenues to fund government’s current and
future expenditure priorities.

The impact of the tax system in the promotion of
small and medium size businesses, including analysis of tax compliance costs,
the possible further streamlining of tax administration and simplification of
tax legislation.

A review of the corporate tax system with
special reference to:

the efficiency of the corporate income tax
structure

tax avoidance
(e.g. base erosion, income splitting and profit shifting, including the tax
bias in favour of debt financing);

tax incentives
to promote developmental objectives; and

the average (and
marginal) effective corporate income tax rates in the various sectors of the
economy.

the agreement
between Government, Labour and Business to ensure that the mining sector
contributes to growth and job creation,
remains a competitive investment proposition, and all role players
contribute to better working and living conditions; and

the challenges
facing the mining sector, including low commodity prices, rising costs, falling
outputs and declining margins, as well as to its current contribution to tax
revenues.

`b) Various elements of taxation within the
financial sector, namely the taxation regime of long term insurers (BR, page
55), the taxation of hedge funds (BR, page 56), the taxation of various
innovative financial instruments (BR, page 63), and the VAT treatment of
financial services and VAT apportionment within the financial sector (BR, page
63).

5. Value added tax with specific reference to
efficiency and equity. In this
examination, the advisability and effectiveness of dual rates, zero rating and
exemptions must be considered.

6. The
impact of e-commerce (especially the use of digital delivery of goods and
services) upon the integrity of the tax base, in particular upon value added
tax and corporate income tax revenues.

7. The progressivity of the tax system and the role
and continued relevance of estate duty to support a more equitable and
progressive tax system. In this inquiry,
the interaction between capital gains tax and the estate duty should be
considered.

8. An evaluation of proposals to fund, for example,
the proposed National Health Insurance (NHI) and long term infrastructure
projects to boost the growth potential of this economy.

9. An evaluation of the legislative process with a
view to both enhancing simplicity and ensuring the protection of the tax base
and to recommend how to improve the current process.

The
Committee is mandated to study any further tax issues which, in the Committee’s
view, should be addressed in order to promote inclusive economic growth,
employment creation, development and fiscal sustainability. The Committee is
required to submit interim reports and a final report which will be published
on dates to be determined after consultation between the Committee and the
Minister of Finance.

Objectives of
South African tax system

The
committee should take into account the following broad tax policy objectives:

a) Revenue-raising to fund government expenditure
is the primary objective of taxation

b) Social objectives, building a cohesive and
inclusive society can be met partially through a progressive tax system and by
raising revenue in order to redistribute resources.

c) Market failures can be corrected by applying a
tax on production and/or consumption to internalise negative externalities,
e.g. pollution or consumption of harmful products.

e) Taxes
and tax incentives are sometimes used in targeted ways to encourage higher
levels of investment to help facilitate economic growth.

f) International competitiveness is important,
although the tax system is not the main driver of international competiveness.
Innovation and productivity improvements are far more important. We should
guard against the ‘race to the bottom’ in our efforts to strive for a
"competitive tax system”.

Background to
the Review

The
South African tax system has changed significantly since the recommendations of
the last tax commission (The Katz Commission). The changes to the system
include the establishment of an independent tax and customs administration (the
South African Revenue Service), the broadening of the tax base, and the
lowering of marginal tax rates. These and other changes have contributed to the
development of a relatively robust and competitive tax system. Today South
Africa’s tax policy and tax administration compares favourably with those of many
developed and emerging economies.

However,
given the pace of globalisation, the relatively modest economic growth after the
2008/09 economic recession, and the significant social challenges such as
persistent unemployment, poverty and inequality, there is a need to review what
role the tax system can play as part of a coherent and effective fiscal policy
framework in addressing these challenges. There is also a need to address
concerns about base erosion and profit shifting, especially in the context of
corporate income tax, as identified by the OECD and G20.

The
email address for the Tax Review Committee is: taxcom@sars.gov.za. Other contact details will be
announced shortly.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.